Retirement at 65

Is it legal these days to retire someone at 65?   That is the question employment lawyers have been ducking since the rules changed last year and senior citizens were given full protection from age discrimination on retirement.  In theory compulsory retirement was still allowed where it could be justified by the employer, but when would that be?

This month the House of Lords have gone some way to making this clear.  In a nutshell it will be easier to justify compulsory retirement for more senior managers - who take a long time to replace - and easier too when the culture of the firm is more easy going.  Those firms who are squeamish about tackling under-performance and would rather wait till the problem person reaches 65 will find it easier to justify a retirement rule than those with a more cut-throat approach.

The case in question concerned a partner at a law firm, Mr Sheldon.  His contract said he would have to retire at 65, but when it came to it he felt he needed to soldier on for a bit longer.  His firm disagreed and he was dismissed.  They relied on a number of reasons to justify themselves.  Firstly, they said, the rule meant that more junior lawyers had an opportunity of partnership within a reasonable period of time which gave them an incentive to stay with the firm.  Secondly, it was easier to plan for the future by knowing when vacancies were going to arise.  Finally, it limited the need to expel under-performing partners, thus contributing to a congenial and supportive culture.

The last point may sound rather woolly, but this is the most frequent concern raised by employers.  If there is no end-date, and the individual does not want to go, what can the company do when their performance drops off to an unacceptable level?  It is difficult to tackle someone about this and it is no way to finish someone’s career.

So, retirement can be justified, but how many of these reasons are going to apply to the majority of workers?   Arguments based on dead men’s’ shoes only apply to those with some management responsibility.  A firm which tackles under-performance without flinching will be less able to justify retirement.  And business planning arguments are only going to apply in shortage categories.

The result is that, rather like restrictive covenants, a retirement rule has to be carefully tailored to the seniority and role of the person concerned.  In Mr Sheldon’s law firm, the retirement policy may work for partners but would not be justifiable for other lawyers.  Employers should now be giving some thought to a retirement policy.  It will be much easier to justify a rule if it has been thought through beforehand, and better still if the policy emerges from consultation with staff.  In a similar way, larger organisations have a policy about which roles may be suitable for a job-share, and companies with restrictive covenants have to tailor them to the role of the individual concerned.  

There may be other arguments for justifying retirement which have not yet been tested.  Those in manual jobs, for example, may be less capable as they get on.  This is a far larger category than partners in law firms and calls for some clear guidance.  An age-based rule would probably be considered too crude a tool for justifying a particular retirement age, but on the other hand is it reasonable to expect firms to put their staff through regular medical or other assessments?  In practice, outside the armed or emergency services annual medicals are very rare, and failing a medical test is not a pleasant way to end a career.  For the time being, it is best to stick to arguments that have been tried and tested in the courts.

How to go about it?  The sensible approach is first to decide whether a retirement rule is appropriate at all for a particular group, and if so why.  Identify the reasons and be sure that they are good business reasons.  Consult about it, particularly before introducing any change to the current rules.  Then decide on what age is reasonably necessary in the circumstances.  There is no magic about the age of 65, and the greater the age, the easier it will be to justify.  And if you had been planning to work on till you dropped, you may have to think again.

For advice on how to formulate a policy for your firm, contact Eoin Fowell on 01752 292353 or email efowell@wolferstans.com